Govt blamed for interest rate rise

Opposition parties say rising interest rates are due to the failure of the Government to address housing supply issues.

As expected, the Reserve Bank lifted the cost of borrowing from 3 percent to 3.25 percent on Thursday, with governor Graham Wheeler signalling more rises this year.

Greens' co-leader Russel Norman. Photo: RNZ

The central bank says people on floating rate mortgages will be hit immediately, while those on fixed mortgages will eventually feel the pain.

The Green Party said on Thursday the latest rise will put more pressure on homeowners and hurt exporters. Co-leader Russel Norman said inflation is well below the Reserve Bank's 2 percent target, and it is virtually the only central bank raising interest rates in the world.

The Reserve Bank is forecasting annual inflation of 1.7 percent in the June quarter.

Dr Norman said the Government's failure to manage the housing sector is partly to blame for the bank's decision on Wednesday.

"Well, it puts enormous pressure on households. It means that someone with a floating mortgage of about $250,000 - basically they're ending up paying about $1200 a year extra in interest than they did back in March, and so that puts a lot of pressure on household budgets."

Labour's finance spokesperson David Parker is laying the blame for the rise squarely at the feet of the Government.

Winston Peters. Photo: RNZ

"So everyone in New Zealand whether they've got a credit card mortgage or they're a business borrowing money to expand their business is paying higher interest rates because of the Government's failure in housing policy."

New Zealand First leader Winston Peters said overseas speculation on the housing market and immigration have driven the increase.

John Key. Photo: RNZ / Chris Bramwell

"The rest of us around the country are now going to pay a price of higher mortgage rates because of it. The Government has failed to act in six years, and it's a sign of serious Government neglect."

The Reserve Bank says there has been pressure on the housing market from immigration - but contrary to what Opposition parties say, it says house price inflation is moderating.

Prime Minister John Key said the latest move by the Reserve Bank was well forecast and reflects the strengthening economy.

"It's growing at around about 4 percent. It's creating a lot of jobs - 84,000-odd jobs were created in the last 12 months, and we now have 1500 people a week coming off welfare into work.

"So it's a strong environment, and that's what the Reserve Bank governor is reflecting. But interestingly enough, he also indicated that any future rate rises what the economic data looks like going forward."